Is an Extended Service Contract Worth the Money You Pay?

When you buy a car that’s new to you, but is a used model there are several different things to consider. If you have found a certified pre-owned vehicle at a dealer that sells only one brand of new cars, you’re probably in good shape to agree to an extended service contract (ESC) and have the coverage you need and an easier time filing a claim, but if the car you choose is sold to you “as-is” with no warranty from the dealer but only the offer of a third party ESC you need to beware of what you’re agreeing to purchase.

There’s nothing wrong with most car dealers and selling used cars is a great way to keep vehicles that are still worth the price you pay on the road. You can find some great deals on cars that have been used by one or two owners already, but you need to know what you’re getting into when it comes to a used vehicle and an ESC from a third party. These extended contracts can sometimes be nearly worthless when you buy them. Unfortunately, and it is their job, the company selling these extended warranties push them hard for an obvious reason; profits.

Many ESCs come with enormous profit margins and the hope and expectation that most customers will never use these warranties. Not only are they highly profitable for the dealer and the third party company, some are written to disallow many forms of repair on a vehicle. Keep in mind, most of the time the only part of your vehicle that a company will actually offer you an ESC on is the powertrain, beyond that many repairs are due to wear and tear on your vehicle and won’t be covered.

While an ESC from a company that deals in a brand of new vehicles can be worth the money there may be a couple of surprises for you to deal with as well. One of the positive surprises is the fact that some of these dealers will offer ESCs on vehicles that didn’t even come from their brand. This gives you the ability to have extended powertrain coverage on a vehicle that’s a used vehicle while giving you the peace of mind you need to know the car will be covered in case of a mechanical failure by the powertrain, but there are still some catches.

One of the items you need to make sure you understand before you agree to an extended warranty is whether or not you have to pay for the repairs up front when you file a claim. This can be a huge factor in the decision to purchase this type of coverage. Another is the deductible expected upon service every time you bring the vehicle in for service. If you have to pay $100 for each visit, it can be extremely costly to have an ESC, especially if the same parts continue to fail you during your driving.

In addition to paying for repairs up front and dealing with deductibles, some of the parts that are replaced, such as hoses and clamps, might not be covered under your extended warranty. This can add up when some parts are replaced, but if the major repairs are covered you should at least have a majority of the service completed under the ESC.

With all that in mind the question remains as to whether or not an ESC is worth the money spend? The answer when dealing with a brand name company and a contract that’s backed by a name you know and trust is “yes”, but in other cases these ESCs aren’t worth the paper their written on. Rather than pay as much as $1,200 for coverage you won’t use or has so many exclusions that you can’t use it, have the vehicle checked out by a mechanic you trust to see if the vehicle will be worth the money and will last for a reasonable amount of time while you drive it. A trusted mechanics test trumps a third party ESC every time and gives you the peace of mind knowing you can enjoy safe and enjoyable driving with the car you choose, without the added cost of an ESC.